In what will undoubtedly be bad news for the Reserve Bank, an analysis of its data reveals that there is plenty of scope for banks to cut mortgage rates beyond the cuts in five year fixed-rates initiated last week.As stated in Banking Day yesterday, brand new home loan business is the point of the latest rate cuts - flushing out new-to-market leads, expanding the market and building volume. With lending rates across the board subdued, the banks may be embarking on a new push to drive lending volumes. Mortgage lending is the only product that is seeing reasonable volume but house prices are approaching bubble territory.Further mortgage rate cuts will only exacerbate this trend.Commonwealth Bank triggered the latest round of cuts when it cut it five year fixed rate by 70 basis points to 4.99 per cent last week. NAB followed with a 70 bps cut to 4.99 per cent and Westpac cut by 80 bps, also to 4.99 per cent. Since then ANZ, AMP Bank, Citibank and others have followed.The catalyst for the cuts is said to be a recent sharp reduction in the five-year swap rate. Which is true to an extent, but not the whole story. Five year swap rates have reduced noticeably since the end of June. At that time the rate sat at 3.3 per cent, since then it has moved as low as 3.11 per cent.This recent contraction in five-year swap rates has been attributed to the rising tension in the Ukraine and Gaza, which has been the catalyst for further contraction in underlying government bond rates.However, underlying government bond rates have been contracting since the end of last year, rather than widening as was expected at the time. The prevailing view was that the US Federal Reserve was about to start unwinding quantitative easing and the US economy was showing signs of growing strength.However, perceptions of global economic weakness persisted and government bond yields have contracted. In Australia's case, the relatively high yields on offer have contributed to the contraction that has occurred, as international investors have sought Australian government bonds.Most of the contraction in bond yields has occurred at the long end of the curve, with the ten-year rate coming in by 63 bps to the end of June. The three-year government bond rate contracted by only 27 bps. The contraction in the five-year government bond rate falls between these two. Fixed rate mortgage lending by the banks is typically match funded. In other words, banks will hedge their exposure on fixed rate mortgages in the swap market. This is why break costs are charged to unwind fixed rate mortgages before the end of the term, as the bank will incur costs when it goes to unwind its hedge.       However, the use of matched funding for fixed rate mortgages does not mean the margin applied over the bank's cost of fixed rate funds is constant. Fixed lending rates will not necessarily move in tandem with underlying swap rates. Competitive pressure or the lack